Polls may create potential shocks, Moody's warns

Polls may create potential shocks, Moody's warns

Dadan Wijaksana, The Jakarta Post, Jakarta

International rating agency Moody's Investors Service has
warned that the ongoing election process in Indonesia could slow
down the pace of economic reform.

In its latest report on Indonesia, issued in New York on
Tuesday, Moody's said that while the country had made progress in
reforming its economy, the implementation of the reform program
this year could be stymied by "potential shocks" arising from the
legislative and presidential elections.

"Parliamentary and presidential elections in 2004 are only
likely to make the achievement of targets and implementation of
reforms more difficult this year," Moody's analyst Steven Hess,
the author of the report, said.

The report, titled Indonesia: Global Credit Research, is
updated once a year.

Indonesia is bracing itself for legislative elections on April
5, and presidential elections on July 5.

The elections might stall the privatization of state-owned
companies and the sale of assets taken over from bank owners
during the crisis, where the government had made fairly good
progress so far, thanks in part to President Megawati
Soekarnoputri's "competent economic team."

"The president has put in place a competent economic team, but
her ability to get measures through Parliament has been less than
complete," Moody's said.

Both privatizations and asset sales require approval from the
House of Representatives.

The government recently sold another 10 percent stake in Bank
Mandiri, and plans to auction stakes in dozens of other state
enterprises, including Bank Negara Indonesia (BNI), the country's
second largest bank; mining firm PT Aneka Tambang; tin producer
PT Timah; coal miner PT Batubara Bukit Asam and a number of
plantation firms later this year.

The government has targeted privatization proceeds of Rp 5
trillion for this year.

Elsewhere, the report also hailed the government for its
achievement in reducing the ratio of public debt to gross
domestic product (GDP), which it said was thanks in part to the
steady rise of the rupiah against its U.S. counterpart.

However, risks remain as the government will need to repay all
its maturing foreign debts this year in the absence of debt
restructuring facilities from the Paris Club creditor nations.
Indonesia has been deprived of these facilities as the government
has decided not to renew a special lending program with the
International Monetary Fund (IMF).

"While net international reserves may decline, this appears
manageable," Moody's said. "But any shock to confidence that
leads to an outflow of private capital could be problematic,
however."

Moody's also said the government's current speculative-grade
ratings and stable outlook still reflected both high government
debt and steep foreign debt levels.

At present, Indonesia's ceiling for foreign currency debt is
B2, while its ceiling for foreign-currency bank deposits is B3,
according to the report.